§ Order for Second Reading read.
§ 3.8 p.m.
§ Mr. Graham Page (Crosby)
I beg to move, That the Bill be now read a Second time.
The purpose of the Bill can be stated very briefly. It is very straightforward. Its purpose is to abolish the necessity of endorsing a cheque unless it is desired to negotiate that cheque.
Right hon. and hon. Members who are fortunate enough to receive cheques from time to time will know that before they can pay them into their bank accounts they have to turn them over and sign them on the back—that is, to endorse them. For the individual cheque which is received every now and again by the individual person, that is not a very great labour, but many hon. Members will be concerned in commerce, industry and the professions and they will know that many hundreds of cheques may be received in an office every day and may require endorsement by responsible people in the office. The time spent in commerce and industry in merely endorsing cheques runs into fantastic amounts.
All that the payee of the cheque is doing by endorsing it in that way is to convert the cheque into a stealable security, because he thereby makes it a bearer cheque and it remains a bearer cheque between the time it leaves his desk endorsed and the time it passes across the bank counter into his bank account. He does nothing for the protection of himself by endorsing that cheque. In fact, he is turning it into something which can be stolen and cashed. What he is further doing is providing bank clerks at probably two banks—the collecting and the paying banks—with the job of examining the endorsement to see whether his signature appears to be—merely appears to be—that of the payee of the cheque.
There was a Departmental Committee set up on this subject. I shall refer to it in a little more detail later, but I now quote one sentence from its Report. It was referring to this effort of endorsing cheques and said:It seems to us that this effort is being expended in relation to the provisions of a 1505 Statute framed to meet conditions very different from today's and that there is justification for the belief that the work is often unnecessary.So far as I can ascertain from the statistics, some 95 per cent, of the trading transactions in this country are settled by cheque. About 780 million cheques are drawn each year. That is a figure which is rather higher than that given in the Report to which I have just alluded, but I have drawn it from a more recent document, the Ninety-Ninth Report of the Commissioners of Her Majesty's Inland Revenue for the year ended 31st March, 1956, in which the proceeds of the Stamp Duty on cheques are stated. By simple mathematics one reaches from that the figure of 780 million cheques drawn each year.
About 4 per cent. of those are bearer cheques. That means that some 750 million order cheques drawn to payee or order are drawn each year and require endorsement by the payees. Less than 3 per cent. of those cheques are negotiated to a third person. Something over 97 per cent. are paid direct by the payees into the payees' banks. So we get the figure of 730 million cheques endorsed each year for no real purpose, as I shall endeavour to show in a moment. All those cheques are examined at least once by bank clerks who turn them over to see whether the endorsements appear to be the names of the payees as stated on the front of the cheques, and five-sixths of them have to be examined twice, not only by the collecting bank but by the paying bank when those two are different banks. So we get the fantastic figure of bank clerks turning cheques over 1,340 million times a year. On about 1 per cent. of those occasions, on 13 million occasions a year, the cheques are returned to the payees for confirmation of endorsement.
The calculation of man-hours spent on that a year is no fewer than 2 million. If we had that sort of waste of time from strikes we should be extremely disturbed. That 2 million man-hours lost in a year is lost amongst bank clerks. I am speaking at the moment of the time spent by the banks upon this work. That means an expenditure of some £1 million in wages a year for bank clerks to turn cheques over to examine endorsements. A similar number of man-hours must be lost amongst people in business and the 1506 professions in signing their names on the backs of cheques. What a waste of time all this is—responsible executives solemnly signing cheques to convert them into stealable bearer cheques in order that some 2 million man-hours of bank clerks' time be spent in seeing if the signatures appear to be those of the payees.
In 1949, a Mr. G. O. Papworth wrote an article in The Banker with the potent title "Endorsements must go". As a result of that article, the Federation of British Industries asked the Committee of London Clearing Banks to review this procedure of endorsement of cheques. That Committee set up a sub-committee to review the matter and to report. The sub-committee reported at the end of 1950, I understand, in favour of the abolition of endorsements with certain exceptions.
In 1954,I had the privilege of introducing a Private Member's Bill under the Ten Minutes Rule to endeavour to abolish endorsements on chequer. Although that Bill died a natural death with the end of that Parliament in 1955, the then Chancellor of the Exchequer had already set up a Departmental Committee to examine the proposition and to see whether it was possible by legislation to bring about abolition. The Departmental Committee reported in November, 1956, and the present Bill is a result of the Report of that Committee in favour of the abolition of endorsements on cheques.
In the Appendix to its Report, the Committee set out a draft Bill. It adopted a method by which abolition could be brought about, using the special crossing which a collecting bank always applies to a cheque when it receives it. Hon. Members will have noticed that when their cheques have been paid and are returned, a rubber stamp has been used across the front of the cheques. On careful study of that very valuable Report, however, and on the best banking and legal advice I could obtain, I thought that there was a more straightforward method, as is contained in the Bill for which I seek to obtain a Second Reading.
If the House will bear with me for three or four minutes, I should like to explain the reasoning of how I came to this straightforward solution. One has to go back to the early nineteenth century 1507 for the history of the endorsement of cheques. In the early nineteenth century, for example, if Mr. Brown drew a cheque payable to a Mr. Smith and the wrong Mr. Smith got hold of the cheque and the bank paid the wrong Mr. Smith, Brown could say to the bank, "You have paid the wrong person. You ought not to have debited me." Indeed, at that time he would have been perfectly right. He would have had a claim against the bank for wrongly debiting him.
Therefore, as a matter of banking practice, the banks required that cheques should be endorsed, the endorsement turning a cheque into a bearer cheque, when the bank could say, "No matter whether this has been paid to the wrong payee, it is a bearer cheque. We have paid the bearer of the cheque and, therefore, we are protected." So far so good.
If, however, the person presenting the cheque—the bearer—had forged the payee's signature on the back of the cheque, that was no endorsement; it was merely a nullity for the purpose of negotiating the cheque to the bank. Two Statutes therefore, were passed during the nineteenth century—Section 19 of the Stamp Act, 1853, and Section 60 of the Bills of Exchange Act, 1882, which protected banks against forced endorsements of cheques. The result of all that is that the endorsement is now no protection whatever to the drawer of a cheque that the right person will get payment of it. The only purpose is to protect the banks. What the Bill endeavours to do is to give that protection to the banks without all this waste of time of endorsing the cheques. That is what is done by Clause 1, which says that if a bankerin good faith and in the ordinary course of businesspays a cheque drawn on him which is not endorsed,he does not, in doing so, incur any liabilityby reason of the fact of the cheque not being endorsed.
A small point arises in that the Clause says that he shall not incur that liability by reason of the cheque not being endorsed. What if the cheque is endorsed but endorsed irregularly? In fact, that is not an endorsement at all in law, so that to speak of absence of endorsement covers irregular endorsement and the banks will be protected.
1508 Clause 1 deals with the paying bank, the banker who pays out on the cheque which does not have an endorsement. It is also necessary to give protection to the collecting banker and to preserve his existing rights; that is done in Clause 2.
This Bill has a fairly long history not only in law, as I have tried to explain, going right back to the early nineteenth century, but also in the present conception of abolishing endorsements on cheques. Over the past few years the matter has been fully aired in the Press, and I have myself been in contact with all responsible associations of professional men, businessmen, accountants, bankers and so on. There was only one objection of any substance which I encountered in this connection. It was that by abolishing the necessity for endorsements, we might be doing away with the useful practice of receipts being endorsed on the back of cheques.
To have a receipt on the back of a cheque which will act as an endorsement as well is a practice which has grown very much in recent years. That is made unnecessary by Clause 3 where it states that a cheque:which appears to have been paid by the bank on whom it is drawn is evidence of the receipt by the payee of the sum payable by the cheque.The Clause refers only to unendorsed cheques. Back in 1800 there was a case, Egg v. Barnett, which decided that an endorsed cheque was a good receipt so that we need deal only with the unendorsed cheque, making it evidence of the receipt of the money by the payee. For the benefit of those who still wish to continue the practice of the receipt endorsed on the back of the cheque, may I refer to the report of the Committee on Cheque Endorsement and to an undertaking given by the Committee of London Clearing Bankers. On page 20, in paragraph 89, of the Report reference is made to the problem of endorsed receipts. It states that the Committee of London Clearing Bankers:have stated that, while the banks could not undertake to examine receipts on cheques without limit as to number and regardless of circumstances, they would be willing in principle to continue this work by arrangement with customers in suitable cases. This means that, although there would be no statutory sanction for the signature of receipts on cheques, drawers who, by arrangement with their banks, 1509 issued cheques with receipt forms on the back, could in practice secure the signature of such forms. Collecting banks would not accept such cheques without signatures, nor would paying banks pay them, and the banks would be able to distinguish them by some identification on the front, for example the capital letter 'R'.The banks are still willing to continue that service to their customers if asked to do so, and at the same time they will not have to turn over each cheque to see whether it is one of those with a receipt endorsed on the back, because they will distinguish from the front whether or not it is one of that kind.
Clauses 4 and 5 deal with two anomalies in existing banking law to which the Departmental Committee referred. I do not think I need go into those in detail. Hon. Members who have read the Report of the Departmental Committee will recollect these two points which are mentioned in page 23. They are two anomalies, and this is a good opportunity of disposing of them.
I should like to say, without offence to other hon. Members, that this is not a Bill produced out of the pigeon hole of a Government Department. It arises from a demand spread over many years by commerce, the professions and industry that the endorsing of cheques represents a really useless waste of time, and that the practice should be abolished. The principle of the Bill has been through the mill of examination by these bodies in commerce, industry and the professions, and many different ways have already been considered of achieving the object. I think that in the Bill the most straightforward way has emerged.
It is particularly important that a decision be reached very soon. About a year ago the banks appointed a committee to consider to what extent banking procedure could be the subject of automation and to what extent electronic devices could assist banking. That committee recently reported in favour of the application of automation to banking. I understand that the bankers have now asked the electronic device designers to prepare some designs of machines for making banking subject to automation. If those designs are already being prepared by electronic manufacturers, it is important that, if there is to be a simplification such as the Bill suggests, it should be made quickly before the designs 1510 of those machines are perfected. I have confidence, therefore, that the House will give this simple little Bill—simple, but one representing a great saving in time and expense—a Second Reading.
§ 3.29 p.m.
§ Mr. Ronald Russell (Wembley, South)
I beg to second the Motion.
I should like to congratulate my hon. Friend the Member for Crosby (Mr. Page) not only on his luck in the Ballot and the pertinacity with which he has attended the House on Friday afternoons to try to ensure that the Bill gets a Second Reading, but also for preparing it and for the evidence which he gave before the Departmental Committee. I am sure that the Bill will save so much time that it is one which the House ought to pass without question. It will save time not only for banks but for offices, all businesses and private individuals. I would quote an extract from the Committee's Report which emphasises the point about time saving which my hon. Friend stressed so much. One of the witnesses before the Departmental Committee said:As Secretary of this Company I spend 15 to 30 minutes daily endorsing cheques. This irksome duty was formerly done by the Managing Director who delegated it to an ordinary Director who in turn delegated it to me. I often delegate it to my assistant and I am contemplating delegating it to the office boy which proves the unimportance of this work.That experience of a businessman ought to ensure that we give the Bill a Second Reading without question.
I sometimes wonder whether the witnessing of signatures on documents could not be whittled down to a great extent. I doubt whether it is a real safeguard. If somebody forged a document presumably he could get it falsely witnessed, with false names and addresses being used. I know that the point is not within the scope of the Bill but it is another example of a practice which is worth looking into.
I hope that the House will give the Bill a Second Reading and that my right hon. Friend the Economic Secretary to the Treasury will, unlike the Parliamentary Secretary to the Ministry of Housing and Local Government on the Litter Bill, give it his enthusiastic support.
§ 3.32 p.m.
§ Mr. Charles Doughty (Surrey, East)
I am happy to observe that the Bill does not alter the position of special endorsements on cheques but is only to deal with the ordinary endorsements of the cheque made out to a named person. I should be very sorry to think that we could not endorse the backs of our cheques as we wished at any time.
Hon. Members may recall the famous cheque drawn by Mr. A. P. Herbert, who was a Member of this House. He wrote it upon a menu, put a twopenny stamp upon it and drew a picture on it so that the bank clerk would recognise it as his. I believe he was astonished when the clearing bank debited it to his account.
There is no magic in the paper or the form on which the cheque is written. If an uncle receives a cheque from a debtor and wishes to give it to his nephew or niece as a present he only has to write, "Pay so and so" and he can add any words of commendation that he likes. He can say, "Pay my affectionate nephew, whom I have always liked and who is still at school, the sum named on the face hereof." The nephew or niece has to endorse it, under the old law. If the original drawer of the cheque were so unwise as to draw it without having the funds to meet it he could get out of his difficulty by adding the words "sans recour". Though Norman French, those words are still good in the language of this country and if the uncle wrote them, he could not be sued upon the cheque.
§ Mr. Doughty
That is perfectly correct. I think it was a cheque drawn in favour of the Commissioners of Inland Revenue and it made things rather awkward for them. In the case mentioned by my hon. Friend, the difficulty was to persuade the cow to turn over in order to put the endorsement on the opposite side of the cheque to that on which was the name of the payee. The difficulty was insurmountable, so the drawer was unable to pay his Income Tax on that occasion.
I am all for maintaining the old form for special endorsements so that cheques 1512 can pass from hand to hand. We are now considering the ordinary cheque which the ordinary person desires to pay straight into a bank, which is the case with the vast majority of cheques.
I must say that I was very surprised when my hon. Friend the Member for Crosby (Mr. Page) told us the number of cheques which were so handled every year. That only shows the necessity for this Bill. He began by saying—I took down his words—that the first thing one does is to turn over the cheque and endorse it. That is the second thing one does. The first is that one looks at the cheque to see how it is made out.
Some cheques are made out to limited companies or to individuals, some have the initials and then the surname, some the surname and then the initials and sometimes the surname is wrongly spelled. It does not matter so long as the endorsement agrees with the name of the person or organisation to which the cheque is made out.
One first finds to what name the cheque is made out, then looks to see that that is exactly copied on the back, and hands the cheque to the bank clerk, who has to do exactly the same. He has to look first to see how the payee's name is drawn and then to see that the endorsement is the same as the name on the front of the cheque. It is surprising how often people merely sign their name on the back of the cheque without seeing what form of name has been used on its face.
Often the cheque has to go back for further endorsement. It does not matter how many times it is signed—"John Smith, J. Smith, J. A. Smith, Smith, J. A., or Smyth"—provided that somewhere in the long catalogue the name is the same in the endorsement as on the face of the cheque. That is rather like a crossword puzzle. I do not like crossword puzzles—
§ Mr. Doughty
I still do not like them.
It is to put an end to that process that this admirable Bill has been introduced.
I wish to refer, not only to the position of those fortunate enough to receive cheques and pay them into a bank, but to the bank clerks who have to deal with these endorsements. I have described the 1513 functions they have to perform on presentation of every cheque. Bank clerks are one of the most respected and valuable branches of our civilisation. They have to be not only extremely honest, but highly trained, very courteous and very efficient. They perform a very useful, although often unsung, service in our civilisation. Adoption of this proposal would relieve them of a great deal of unnecessary work. If for that reason alone, I hope that the Bill will be given a Second Reading.
Another class of person will also benefit. That class is in firms which receive large numbers of cheques every day. They might be for big sums or small sums, but at present all of them have to be endorsed. As my hon. Friend the Member for Wembley, South (Mr. Russell) said, the signature very often has to be done per procuriam. Often a rubber stamp is used to get over the difficulties. All that has to be gone through, and takes a long time.
This is a very useful Bill. It will assist to a small but important degree the commerce of this country, and will assist individuals who have to deal with cheques. It will not make fraud or dishonesty one little bit easier. I hope that this archaic relic of the past, which is totally unnecessary, will be swept away and that the Bill will be given a Second Reading.
§ 3.40 p.m.
§ Sir Patrick Spens (Kensington, South)
I am sorry to bring a word of doubt into such complete unanimity in a very small House. I have read and considered with great care the Departmental Committee's Report and so forth, and I am bound to say that in my view it is based on a theory which I do not believe is justified in fact.
It is based on the theory that a large number of persons are kept busy by either merely endorsing cheques or looking at the endorsements on the back of cheques as if they were isolated business transactions. They never are. Those who deal with cheques are invariably people who keep books. Anyone who goes into a bank and pays in a cheque knows perfectly well that the person who looks at the endorsement takes the cheque across the counter, turns it over, glances at the endorsement, and then 1514 makes the necessary entry in the book. I just do not believe that thousands of hours are going to be saved to anyone by the Bill.
I agree that there has been a very substantial demand for the Bill, but. I believe that the basis on which the Bill has been introduced and supported is radically wrong. I do not believe that there is the waste of time alleged in connection with cheques. On the other hand, I believe that there is a certain amount of protection for all of us and for business in the fact that a cheque must be looked at carefully before it is entered into a book or an account.
Old-fashioned as I am, I still believe that our fathers and grandfathers would not have invented this method of dealing with cheques unless there was a good deal to be said for it. I believe that the safeguards which are involved for business and individuals in the fact that one has to look carefully at a cheque and must consider for a moment or two, before one passes a cheque, to make certain that it is properly endorsed, or before one endorses it, have been, and still are, a substantial protection.
I suppose I ought to say that I am a member of a London committee of the Scottish Bank, and, therefore, to some extent I have a very distant interest in the matter. I know there has been a certain demand for the Bill on the basis that it will save time, but, frankly, I believe that that has been very greatly exaggerated. The House ought carefully to think about the safeguards existing in the present practice before making a change.
§ 3.43 p.m.
§ Mr. Martin Maddan (Hitchin)
Unlike my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens), I wholeheartedly support the Bill. It comes at a time when the whole basis of economic thought, and, in step with that. Government legislation, is freeing business from all sorts of restrictive practices and bits of red tape. I would put the practice of endorsing cheques on the same basis as the other bits of red tape.
My right hon. and learned Friend said he was old-fashioned and did not like the idea of abolishing a safeguard. I would 1515 remind him that identity cards were introduced for a particular reason, but when they came to be abolished all sorts of people said, "We shall have no protection. Our savings bank accounts will be robbed and rifled by imposters and no one will be able to check whether the man coming in to draw the money is the real owner of the savings bank book or not". Yet I have not heard of any increase in the amount of fraud carried out at the expense of people with Post Office Savings Bank accounts, or at the expense of the Post Office, as a result of the abolition of identity cards.
I must say that I know certain people who still feel safer with their identity cards—I cannot think why—because they feel that they give them some sort of protection. It is a protection which seems to me to be of the same order as the superstitions of the jungle.
It has also been said that it does not take up an enormous amount of time to have this system of endorsing cheques. There again, I cannot really agree. To begin with, the, endorsement itself has to be made. I think that point was rather overlooked in what my right hon. and learned Friend said. As was rightly pointed out a little previously, the cheque has to be meticulously endorsed with exactly the same name. It is often written wrongly on cheques. I know that to my cost. I have a name which nine times out of ten is spelled wrongly. For the benefit of anyone reporting what I am saying, I will add that the correct spelling of my name is with the penultimate letter "a" but on nearly every cheque that I get the penultimate letter is "e". So, painstakingly, I have to write out the name on the cheque which is spelled wrongly and then write out my name with the correct spelling. I do not see what great protection this gives my bank or anyone else.
§ Sir P. Spens
Assuming that my hon. Friend's name has been spelled wrongly and assuming that there is another client at the bank whose name is that which has been spelled wrongly, how does the bank know into which account to pay it?
§ Mr. Maddan
There is some little protection for the bank because in fact I write on the back of the cheque both my name and the name of the other customer.
§ Mr. Doughty
My hon. Friend realises that he probably has to fill in the paying-in slip on the bank's own form and banks do pay some respect to their own form.
§ Mr. Maddan
I should like to continue by saying that the time spent by the customer at the bank is obviously very important. This is particularly true of large firms handling a very large number of cheques. This is equally true of the time spent by the banks. I cannot see that the time spent by a bank can be justified at all as an economic proposition when the whole trend of accounting as it is today is towards much greater mechanisation, both in the making of entries, the keeping of entries, the analysing of entries and all the rest of it. By having this extra and antiquated system injected into our banking procedure, we are keeping a great many people employed—and it must add up to quite a lot of time—who could be doing better things.
If I may say so—and I hope with the approval of hon. Members sitting opposite—whereas I do not always agree about the difference which is held by some economists between productive labour and non-productive labour, I do very strongly hold that there is an extra benefit conferred upon the community if we can reduce the amount of administrative work that is done compared with the actual amount of time spent in making stuff, producing stuff, improving stuff and so on. We see in the City today and in the large commercial centres throughout the country huge office staffs. This ratio has, I think, been steadily growing, certainly since the First World War, and probably since the 1870s.
A lot of the time is spent in not doing really necessary work or a necessary job for the forwarding of production and really constructive administration. It is done because it has grown up to be a tradition to do it. The hon. Member for Reading (Mr. Mikardo) will know better than many people in the House how much work of this sort is done for no other reason than that it happens to have been done before. When the financial experts go into a firm they invariably find that many people working 1517 on forms and doing other things which are merely an inheritance of the past. I should like to add my voice in support of the Bill.
§ 3.50 p.m.
§ The Economic Secretary to the Treasury (Mr. Nigel Birch)
On these occasions, it is usual for Ministers to congratulate their hon. Friends who bring in such Bills. That sometimes degenerates into a mere formality, but I should like to say a very special word of congratulation to my hon. Friend the Member for Crosby (Mr. Page). He has studied this subject most carefully and has shown the most admirable persistence in putting his views before the public, before this House and before the Government. To day he has succeeded in bringing in this Bill.
In his admirable speech, he disclosed his very great knowledge of the subject. The simplicity with which he put his case disguises the fact that the law about endorsement is extremely complicated. It was for that reason, and as a result of representations that he made, that the Government decided to set up this Departmental Committee, under Mr. Mocatta, to study the whole matter. On behalf of the Government, I should like to express our most grateful thanks to Mr. Mocatta and his Committee, who examined the whole matter with the greatest possible care. Anyone who has read their Report will see what a thorough, painstaking and deep-thinking inquiry they made.
My hon. Friend has not adopted, as he said, exactly the solution which was propounded by that Committee, but I can say that the Government believe, not only that he is right in the general purpose of his Bill, but also that the method he proposes is, in general, the correct one. We have, of course, considered the points so ably put by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens), which might be held to militate against the Bill, but after setting up the Mocatta Committee and receiving its Report, we believe that those objections are not really strong enough to outweigh the general advantages that would accrue to the country if this Bill became law.
On the subject of endorsement, I quite agree with what my hon. Friend the Member for Hitchin (Mr. Maddan) says. 1518 People always spell my name with a "u," and I find it extremely irritating to have to write my name out twice, once rightly and once wrongly.
§ Mr. Birch
I hesitate to speculate, but I hope that we can count on the hon. Gentleman's support as a result.
As my hon. Friend said, this Bill has the support of many professional bodies, and, in general, of the banking world. What he did not mention is that it has also the support, as I understand, of the staff associations; of the Central Council of Bank Staff Associations and of the National Union of Bank Employees. These are the men who spend part of their lives, at least, performing what must be the very stultifying business of examining endorsements, not because the endorsements are really a safeguard, but merely to see whether someone has endorsed a cheque exactly as his name was written on the front. They find that a stultifying business, and very rightly they are in favour of the Bill. I hope, therefore, that the House will give it a fair wind.
As I say, the Government are in favour of the purpose of the Bill, and they are also in favour of the general method of approach of my hon. Friend, but, as I have pointed out, this is a very complicated legal matter, and the general endorsement that I have given to the Bill should not be held to include every word of every Clause. It may be that when we get to the Committee stage it will be right to make certain minor Amendments in the Bill which will be for the purpose only of making it better and more watertight.
We think this is a right development. We think it is in the national interest. We think the Bill is in general on the right lines, and we are extremely grateful to my hon. Friend the Member for Crosby and to his seconder the hon. Member for Wembley, South (Mr. Russell) for so ably moving and seconding the Bill.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Page.]
§ Committee upon Friday, 10th May.